Introducing TOR: The Stablecoin of Hector Finance + Information for Beta Testers

Nothing in this article or any other should be considered as advice or a guarantee. Always consult with an expert and make responsible decisions.

Say hello to $TOR: Hector‘s Decentralized Stablecoin.

Why is Hector issuing a Stablecoin?

Cryptocurrency-backed stablecoins are issued with cryptocurrencies as collateral, which is conceptually similar to fiat-backed stablecoins. However, the significant difference between the two designs is that while fiat collateralization typically happens off the blockchain, the cryptocurrency or crypto asset used to back this type of stablecoin is done on the blockchain, using smart contracts in a more decentralized fashion.

Growth of market cap and the price of HEC is our goal. We explained in the Medium article outlining our 2022 Master Plan, a rebase model like we currently have is not going to cut it. Looking at other rebase projects’ performance over the last couple of months, it is clear that high APY rates are ultimately unsustainable. In a rebase model with an APY as high as is commonly seen in the space, everyone’s piece of the pie will be drastically diluted. This is because with high APY rates without true utility to then token is unsustainable.

The market is competitive and is continuously developing. We aim to provide as much utility to the $HEC token for our holders as possible. APY will play a less prominent role for our project in 2022, for the benefit of all holders. The goal is to have a negative inflation rate. Eventually, the supply will have been reduced enough that we reach a number which allows for easier use and creation of utility.

How will we move towards being deflationary? We will combine the best of both worlds: a rebase project with an APY with an entire ecosystem of utility for the HEC token. Hector Bank, Hector NFT, Hector Launch, Hector Pay, etc.

As the utility of the HEC token increases, the demand for the token will too. As we add utility to the token, APY becomes less important over time. This is explained by the graphic below.

Revenue from Hectors projects flows into the DAO Wallet. Excess funds will be used for marketing, development, salaries. The subprojects themselves will eventually in some way require HEC for their use, which increases the utility of the token.

The main goal of the introduction of our very own Stablecoin is to lay more of the foundation for significant growth of the Hector Ecosystem.

TOR will also be used in Hector Bank as collateral, and Hector Pay. Hector Pay is one of the most ambitious goals we have. We aim to create a payment system which will allow users to pay for real-world items using their (DeFi) crypto balance. The ultimate goal of cryptocurrencies in our view is to supplement fiat currencies, all with a focus on decentralization. Users will also be able to send and receive coins on multiple networks to and from friends and family using a mobile app. TOR will be used for payments with the lowest transaction fees, all of this will leverage the power and speed of the Fantom Opera chain.

What is TOR?

Our community voted for the name TOR with HIP-016! TOR stands for Tyche Owned Reserve. Tyche was, as Wikipedia explains, the presiding tutelary deity who governed the fortune and prosperity of a city, its destiny. In Classical Greek mythology, she is the daughter of Aphrodite and Zeus or Hermes, and at this time served to bring positive messages to people, relating to external events outside their control. Tyche is considered to be the Greek goddess of fortune, chance, providence and fate.

How does TOR work?

TOR is a new ERC20 token which only can be minted when a user burns HEC. TOR can be exchanged for newly minted HEC (redeemed) using the HEC price oracle, implemented with Time Weighted Average Price (TWAP). Oracles are a fundamental component to any stablecoin’s base functionality. An oracle, in relation to blockchain technology, is a system built to feed data to smart contracts.

Generally, a Stablecoin is only valued and trusted if it maintains it’s price peg. TOR is pegged to $1. How is it ‘backed’? There are two layers of TOR’s backing:

1. Smart-contract algorithms and the HEC/stable LP
2. Hector Finance Treasury

Layer 1: Smart-contract algorithms and HEC/stable LP

The underlying protocol uses the basic market forces of supply and demand to maintain the price of TOR. Everybody understands that when the demand for TOR is high and the supply is limited, the price of TOR would increase. When the demand for TOR is low and the supply is too large, the price of TOR would in principle decrease. The protocol ensures the supply and demand of TOR is always balanced, leading to a stable price.

How does this work? Expansion and contraction! To maintain the price of TOR, the HEC supply curve pool adds to or subtracts from TOR’s supply. Users burn HEC to mint TOR and burn TOR to mint HEC, all incentivized by the protocol’s algorithmic market module. Let’s visualize the minting and redeeming process:

Hector (HEC) is the counterpart to the TOR Stablecoin. By modulating supply, Hector’s price increases as the demand for TOR increases. Let’s zoom in on the elements Expansion and Contraction:

• Expansion: The percentage of TOR in the curve pool decreases, so it means that the demand for TOR is high. The price of TOR against USDC/DAI also increases slightly, so minting TOR can be slightly profitable. Users will take advantage of this profit margin by minting TOR and rebalancing the percentage of TOR in the curve pool.
• Contraction: The percentage of TOR in the curve pool increases meaning that the demand for TOR is low. The price of TOR against USDC/DAI also decreases slightly, so redeeming TOR can be slightly profitable. Users will take this profit by redeeming TOR and rebalancing the percentage of TOR in the curve pool.

Expansion and contraction can be considered the prime mechanism for maintaining peg (layer 1). TOR maintains stability through a simple swap mechanism: 1 TOR can be exchanged for 1 dollar’s worth of HEC at any time. If TOR becomes less valuable than $1.00, buyers can buy it up and use the mechanism to redeem it for $1.00, enabling them to make a profit. As buyers do this, demand for TOR causes the price to go up again until it reaches $1 USD. These economic incentives act rapidly to maintain TOR’s stability.

HEC/stable LP

As HEC/DAI, HEC/USDC and HEC/frax are mostly owned by the protocol, sufficient liquidity is guaranteed when a TOR redeem action takes place. All protocol controlled HEC/stable LP is there to make sure the redeeming process will be successful.

Layer 2: Hector Finance Treasury.

Although there is the curve pool as “Layer 0” for swapping TOR back and forth, we still need to do mint/redeem from time to time in a much lower frequency. The mint/redeem at Layer 1 will cause the price of HEC to (slightly) increase or decrease.

Information for Beta Testers

TOR Beta Testers (farmers), please note the following important information:

• Only whitelisted users can mint a limited amount of TOR with DAI or USDC. In the Farming section at http://app.hectordao.com you have to approve the use of USDC or DAI (or both), after which you can mint TOR with them
• At the moment the maximum minting amount per account is $50,000.
• Users can also get TOR by exchanging DAI or USCDC via the curve pool: https://ftm.curve.fi/factory/62/.
• The mint price is fixed. The spot price of TOR could be slightly higher or lower than the mint price ofTOR.
• After the minting you’ll need to create an LP on Curve Finance, containing TOR + USDC and/or DAI. So if your maximum budget it’s $200 for this process, the best thing to do is: use 100$ to mint TOR, and put 100 TOR in the Curve Pool with 50 DAI and 50 USDC. (100 TOR + 100 DAI is ok as well, or 100 TOR + 100 USDC).
• To get the maximum LP from curve pool, please use the calculator on our Farming section at http://app.hectordao.com.to see the optimal percentage of each stable coin as welll as the spot price of TOR/DAI/USDC, which should be considered by every user.
• Do not buy TOR at a price higher than $1.01. When the price is above $1, whitelisted users will mint more TOR to make the price return to $1 as there will be a very slight arbitrage profit.

$TOR

TOR will be instrumental to the ambition of Hector Finance. The ultimate goal is to become deflationary. The utility of HEC goes up by the demand for TOR, as TOR can only be minted by burning HEC.

Soon TOR will also be enabled in Hector Bank to be used as collateral. When TOR is supplied into the lending pool, oTOR will be issued to the supplier and oTOR will incur all interests from the lending.